10-Q: Centuri Holdings Returns to Profit, Boosts Revenue in Q3

Centuri Holdings reported a net income of $2.1 million in Q3 2025, a significant improvement from a prior-year loss, driven by strong revenue growth across most segments and the completion of its separation from Southwest Gas Holdings.

Summary

• Centuri Holdings achieved a net income of $2.1 million for the fiscal three months ended September 28, 2025, a substantial improvement from a net loss of $3.6 million in the same period last year.
• Total revenue, net, increased by 18.1% to $850.0 million in Q3 2025, up from $720.1 million in Q3 2024.
• For the fiscal nine months ended September 28, 2025, the net loss was reduced by 54.9% to $7.7 million, compared to a $17.2 million net loss in the prior year, with total revenue growing 10.6% to $2.12 billion.
• Consolidated gross profit margin decreased to 9.2% in Q3 2025 from 10.5% in Q3 2024, primarily due to the absence of high-margin storm restoration services and initial lower margins from onboarding a new Master Services Agreement (MSA) in the Non-Union Electric segment.
• The company completed its full separation from Southwest Gas Holdings on September 5, 2025, with Southwest Gas Holdings divesting all remaining ownership interest and relinquishing governance rights.
• Centuri refinanced its term loan facility to $800 million and increased its senior secured revolving credit facility to $450 million on July 9, 2025, extending maturities to July 9, 2032, and July 9, 2030, respectively.
• Backlog as of September 28, 2025, was approximately $5.9 billion, with 86% related to MSAs.
• Net cash used in operating activities for the nine months ended September 28, 2025, was $(5.8) million, a decrease from $97.2 million provided in the prior year, largely due to a non-recurring favorable impact from the initial sale of accounts receivable under the Securitization Facility in September 2024.

Sentiment

Score: 7

Explanation: The company demonstrated strong revenue growth and a return to profitability in the third quarter, significantly reducing its year-to-date net loss. Strategic initiatives like the full separation from Southwest Gas Holdings and debt refinancing provide a clearer path forward. However, gross margin compression in the Non-Union Electric segment due to the absence of high-margin storm work and onboarding new contracts, along with a decrease in operating cash flow compared to the prior year (due to a non-recurring securitization benefit), present areas for continued monitoring.

Positives

• Achieved a net income of $2.1 million in Q3 2025, a significant turnaround from a $3.6 million net loss in Q3 2024.
• Reported strong consolidated revenue growth of 18.1% in Q3 2025 and 10.6% for the nine months ended September 28, 2025.
• U.S. Gas segment recorded its highest quarterly revenue to date at $412.4 million, a 12.7% increase, with a slight gross margin improvement to 7.7%.
• Canadian Gas segment revenue surged by 38.7% to $74.2 million, with gross margin improving to 21.9% due to better bid margins.
• Union Electric segment revenue grew by 25.0% to $214.5 million, driven by new bid project wins, and gross margin increased to 9.1%.
• Successfully refinanced credit facilities, extending debt maturities to 2032 for the term loan and 2030 for the revolving credit facility, and increasing revolving credit capacity to $450 million.
• Completed the full separation from Southwest Gas Holdings, allowing Centuri to operate as a fully independent public company.
• Reduced the net loss for the nine-month period by 54.9% to $7.7 million compared to the prior year.

Negatives

• Consolidated gross profit margin decreased to 9.2% in Q3 2025 from 10.5% in Q3 2024.
• Non-Union Electric segment gross profit decreased by 50.5% to $10.6 million, with gross margin falling to 7.1% from 16.6%, primarily due to the absence of storm restoration services revenue ($0 in Q3 2025 vs. $34.7 million in Q3 2024) and lower margins from onboarding a new MSA.
• Operating income decreased by 13.4% in Q3 2025 to $36.3 million.
• Net cash used in operating activities for the nine months ended September 28, 2025, was $(5.8) million, a significant decrease from $97.2 million provided in the prior year, largely due to the non-recurring favorable impact of the Securitization Facility in the prior year.
• Cash and cash equivalents decreased to $16.1 million as of September 28, 2025, from $49.0 million at December 29, 2024.
• Selling, general and administrative expenses increased by 28.5% in Q3 2025 and 18.1% for the nine-month period, driven by higher stock-based compensation, incentive compensation accruals, separation-related costs, and public company operating costs.
• Interest expense, net, increased by 9.5% in Q3 2025 due to $8.3 million in costs related to the credit facility refinance.

Risks

• Customer project scheduling and duration.
• Weather conditions, including major storms, and general economic conditions.
• Differences between actual and anticipated outcomes of bid or other fixed-price construction agreements.
• Outcomes from contract and change order negotiations.
• Ability to successfully procure new work and impacts from work awarded or failing to be awarded from significant customers.
• Productivity inefficiencies from regulatory requirements, customer supply chain challenges, or delays in commissioning individual projects.
• Regional or national economic conditions and demand for services.
• Price, volatility, and expectations of future prices of natural gas and electricity.
• Increases in the costs to perform services caused by changing conditions.
• Termination or expiration of existing agreements or contracts.
• Decisions of customers to pursue capital projects due to economic impacts.
• Budgetary spending patterns of customers.
• Inflation and other increases in construction costs that may not be passed through to customers.
• Cost or schedule overruns on fixed-price contracts.
• Availability of qualified labor for specific projects.
• Need and availability of letters of credit, payment and performance bonds, or other security.
• Costs incurred to support growth, whether organic or through acquisitions.
• Timing and volume of work under contract.
• Losses experienced in operations.
• Results of review of prior period accounting on certain projects and the impact of adjustments to accounting estimates.
• Developments in governmental investigations and/or inquiries.
• Intense competition in the industries.
• Existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs, such as the City of Chicago matter.
• Failure of partners, suppliers, or subcontractors to perform their obligations.
• Cybersecurity breaches.
• Failure to maintain safe worksites.
• Risks or uncertainties associated with events outside of control, including severe weather conditions, public health crises and pandemics, political crises or other catastrophic events, such as the conflicts in the Middle East and the ongoing war in Ukraine.
• Impact of changes to federal policies, including those with respect to taxes, trade policies and tariffs.
• Adverse developments affecting specific financial institutions or the broader financial services industry, including liquidity shortages or bank failures.
• Client delays or defaults in making payments.
• Cost and availability of credit and restrictions imposed by debt agreements.
• Impact of credit rating actions and conditions in the capital markets on financing costs.
• Changes in construction expenditures and financing.
• Levels of or changes in operations and maintenance expenses.
• Ability to continue to remain within the ratios and other limits in debt covenants.
• Failure to implement strategic and operational initiatives.
• Risks or uncertainties associated with acquisitions, dispositions and investments.
• Possible information technology interruptions or inability to protect intellectual property.
• Failure to comply with laws.
• Ability to secure appropriate insurance, licenses or permits.
• New or changing legal requirements, including those relating to environmental, health, licensing and safety matters.
• Loss of one or more clients that account for a significant portion of revenue.
• Asset impairments.
• The responsibility under a guarantee could exceed the amount recoverable from the subsidiary alone and could materially and adversely affect consolidated financial condition, results of operations and cash flows.

Future Outlook

Centuri Holdings believes its capital resources, including existing cash balances, operating cash flows, and credit facilities, are sufficient to meet financial obligations for the next 12 months and the foreseeable future. The company is well-positioned to capitalize on the growing demand for outsourced utility infrastructure services driven by aging infrastructure, increased regulatory stringency, and a changing utility workforce. Management expects to continue renegotiating major contracts to address increased costs and anticipates margins on new MSAs to improve as crews reach full utilization. While monitoring potential impacts from rising fuel, labor, material costs, interest rates, and tariffs, the company does not currently expect a material effect on its results of operations from tariffs or the recent U.S. government shutdown. Liabilities from known legal matters, including the City of Chicago claim, are not expected to have a material effect on financial position, results of operations, or cash flows.

Management Comments

• "Our capital resources, including existing cash balances, together with our operating cash flows and borrowings under our credit facilities, are sufficient to meet our financial obligations for the next 12 months and the foreseeable future."
• "We believe these trends represent a significant challenge for utilities, but also an opportunity for outsourced utility infrastructure services companies to build and maintain more efficient, sustainable infrastructure that can meet the energy needs of future generations."
• "We believe we have taken steps to secure delivery of a sufficient amount of equipment and do not anticipate any significant disruptions with respect to our fleet in the near-term."
• "We believe that we are well-positioned to serve the increased demand resulting from system integrity management programs to enhance safety pursuant to federal and state mandates."
• "We believe that we are well-positioned to support growing customer attention in achieving environmental objectives through infrastructure construction and maintenance."
• "We believe that we will continue to renegotiate some of our major contracts to address the increased costs of future work."
• "We believe that any liabilities resulting from any known legal matters, including the City of Chicago matter described in Note 14 Commitments and Contingencies Legal Proceedings, will not have a material effect on our financial position, results of operations or cash flows."
• "We expect to continue to incur capital expenditures to meet anticipated needs for our services."
• "We believe that fuel, labor and material costs could rise in the future resulting in a negative effect on our results of operations or that fluctuations in the price or availability of materials and equipment could impact costs to complete projects or result in the postponement of projects."
• "We believe that rising interest rates on our variable-rate debt could have a negative effect on our business, financial condition and results of operations."
• "We believe that the impacts of tariffs will not be material to our results of operations."
• "We believe that projects included in backlog can be subject to delays or cancellation as a result of regulatory requirements, adverse weather conditions, customer requirements and other factors that could cause actual revenue to differ significantly from the estimates, or cause revenue to be realized in periods other than originally expected."
• "We believe that margins on a new MSA are expected to improve as crews reach full utilization."
• "At this time, the shutdown has not had a material impact on our business, operations, or demand for our services, and we do not currently anticipate a material impact." (Regarding the U.S. government shutdown)

Industry Context

The North American utility sector faces challenges from aging infrastructure, driving increased demand for modernization, replacement, and expansion services. Governments are increasing regulatory stringency and enacting legislation to support necessary infrastructure investments for safety and future energy demands. Labor market constraints and a changing utility workforce are leading to greater reliance on external outsourced utility infrastructure service providers, creating a growing market ripe for consolidation. Centuri's services align with these trends, supporting system integrity management programs and environmental objectives like methane emission reduction and renewable energy infrastructure initiatives.

Management Changes

Corporate Governance

Legal Proceedings

• NPL Construction Co. (a subsidiary) is pursuing a contract claim for damages against the City of Chicago and related parties, arising out of work NPL performed for the City.
• The administrative agency denied NPL's claim for damages on July 18, 2024.
• NPL filed a petition seeking a review of the administrative agency's decision by the Circuit Court of Cook County Illinois on November 8, 2024.
• The company intends to vigorously pursue this matter, but cannot accurately predict the ultimate outcome. If NPL is unsuccessful in collecting withheld receivables, this matter could result in an additional significant loss, which is not currently estimable. No reserves have been accrued to date.

Related Party Transactions

• Southwest Gas Holdings, the company's former parent, divested all of its remaining ownership interest in Centuri by September 5, 2025.
• Revenue from Southwest Gas Corporation (a wholly owned subsidiary of Southwest Gas Holdings) was $24.8 million (3% of consolidated revenue) for Q3 2025, down from $27.2 million (4%) in Q3 2024.
• For the nine months ended September 28, 2025, revenue from Southwest Gas Corporation was $72.0 million (3% of consolidated revenue), down from $79.2 million (4%) in the prior year.
• As of September 28, 2025, approximately $8.8 million (3%) of accounts receivable and $2.4 million of contract assets were related to contracts with Southwest Gas Corporation.
• The company entered into an Unutilized Tax Assets Settlement Agreement with Southwest Gas Holdings on February 24, 2025, resulting in an allocation of $55.4 million in deferred tax assets (primarily net operating losses) as a capital contribution.
• The company's former chief executive officer and board member began serving as CEO and President of a customer in August 2024; this customer ceased to be a related party in December 2024 when the former CEO resigned from Centuri's Board.

Stakeholder Impact

• Shareholders: Positive impact from return to profitability, revenue growth, and strategic independence. Potential risk from legal proceedings and operational challenges affecting margins.
• Employees: Impacted by stock-based compensation and cash-based incentive compensation accruals. Demand for services and availability of qualified labor are key factors.
• Customers: Benefit from modernized utility infrastructure services. Potential for renegotiated contracts to address increased costs.
• Suppliers/Creditors: Debt refinancing provides extended maturities. Securitization facility enhances liquidity.
• Regulatory Authorities: Company is subject to federal and state mandates for system integrity management programs.

Next Steps

• Continue to renegotiate major contracts to address increased costs of future work.
• Monitor the U.S. government shutdown for potential impacts on business, operations, or demand for services.
• Continue to incur capital expenditures to meet anticipated needs for services.
• Monitor the impacts of tariffs on equipment price and availability and project scheduling.
• Work to improve margins on the new Non-Union Electric MSA as crews reach full utilization.
• NPL Construction Co. will continue to vigorously pursue its contract claim against the City of Chicago through judicial review.
• Evaluate the impact of ASU 2023-09 (Income Taxes) on disclosures for the 2025 fiscal year.
• Evaluate the impact of ASU 2024-03 (Income Statement Expenses) on disclosures for the 2027 fiscal year.
• Tax Assets allocated from Southwest Gas Holdings remain subject to true-up until after Southwest Gas Holdings' 2025 tax return is filed.

Key Dates

Recommendation

Centuri Holdings shows promising revenue growth and a return to net income in the latest quarter, indicating operational improvements and successful strategic separation from Southwest Gas Holdings. The debt refinancing also provides financial stability with extended maturities. However, the decline in gross margin in the Non-Union Electric segment, primarily due to the absence of high-margin storm restoration work and initial lower margins on a new MSA, warrants caution. The significant decrease in operating cash flow year-over-year, while partly explained by a prior non-recurring benefit, highlights the need to monitor ongoing cash generation. The unresolved legal proceeding with the City of Chicago also presents an unquantified risk. Given the mixed financial signals—strong top-line growth and strategic progress balanced against margin pressures and cash flow dynamics—a "hold" recommendation is appropriate for a seasoned investor to observe the sustained improvement in profitability and cash flow generation, particularly as new MSAs mature and storm work normalizes.

Keywords

utility infrastructure services, natural gas distribution, electric distribution, transmission networks, SEC filing, 10-Q, Centuri Holdings, CTRI, financial results, quarterly report, debt refinancing, Southwest Gas Holdings separation, backlog, construction services, energy network, utility modernization